Gambling is often associated with crime. The relationship is easy to understand. Many types of gambling have been, indeed still are, illegal. Hence, by definition, criminals were the only operators of games. When gambling restrictions were relaxed, criminals were the first to open up legal gambling establishments. A lax regulatory framework in Nevada did not prevent members of organized crime from openly owning and operating casinos. To some degree, Nevada needed the criminals to make gambling viable because no one else had their expertise and experience.1

Up to the 1960s, Nevada had a Difficult Time Keeping Mobsters out of the Casinos. Nevada was plagued by teamster financing, hidden ownership, employment of individuals of questionable character and background, and the clear links to organized crime.2 In this context, organized crime doesn't just mean Mafia.3 Nevada improved its regulation only under the threat of federal intervention.4 The federal government believed, with good reason, that Nevada casinos were fueling organized crime throughout the country.

Because of this history, the concern about organized crime usually is raised whenever legalizing gambling is discussed. Even when New Hampshire began its state lottery in 1964, there was concern that organized crime would take over.5

Much has changed since the days when Bugsy Siegel started the first modern casino in Las Vegas. Organized crime has become part of the mystique of gambling but it is without significant influence today. Las Vegas and the Flamingo are part of an historical association with organized crime.

Modern Casino Gaming Has Safeguards to Protect Against Organized Crime. Casino gaming has become one of the most highly regulated industries in America. The companies and individuals involved are very carefully scrutinized and held to extremely high standards. The organized crime scare is simply that, a scare according to many observers.6 Gambling is indeed associated with crime, specifically political corruption.

The casino companies suggest that they are devoid of organized crime influence because they are:

Dominated by publicly-held companies, many with household names like Hilton and Sheraton.

Answerable to their shareholders who are thousands of individuals and institutional investors.

Answerable to the Securities Exchange Commission.

Indistinguishable from any other business with accountants, attorneys, payroll specialists, auditors, and market researchers.

Licensed and tightly-regulated by state governments.

Nevertheless, there remains an ever present concern about organized crime. The sheer volume of money, cash in particular, that is generated by gambling, makes it a tempting target. Organized crime has been successful infiltrating ancillary businesses such as machine maintenance or those that provide other services.7 Often labor unions are used as the vehicle to carry out the infiltration.8 There are examples of organized crime infiltration. For example, as discussed in the section on gambling and politics, the FBI is investigating allegations that Louisiana state legislators took multimillion dollar payoffs to approve an expansion of video poker. The individuals attempting to buy influence were connected to organized crime families.

Researchers state that organized crime is more of a product of illegal or poorly regulated gambling than well-regulated gambling.9 That is especially worrisome because gambling isn't just done within the large casinos. There are many other gambling opportunities and not all are as well-regulated or as free of organized crime influence as casinos. In California, cardrooms and Indian casinos have been a focus of concern about criminal infiltration.

The Role of Organized Crime and Indian Gaming has Been a Controversial One. As noted in the section on Indian gaming, the charge that Indian gaming has been infiltrated by organized crime has been made. Competitors and antigambling interests use that charge as an attack on Indian gaming. Some researchers and industry observers are quick to point out that, however, there is no evidence that organized crime has significantly infiltrated Indian gambling operations.10 Others counter that inadequate regulation and oversight make it harder to find evidence. But there is ample evidence of attempts, some of which have met with success.

The Los Angeles Times ran a lengthy article on Mafia attempts to take over an Indian gaming operation in California.11 The attempts were ultimately unsuccessful. The information used in the article was from a long-running federal investigation. The same investigation eventually ended with the conviction of Richard Silberman, the former State Director of Finance, on charges unrelated to the gambling infiltration attempt.

There have been other incidents.12 Two tribal leaders who had complained that Indians weren't getting a fair share of gambling profits at another facility were later murdered. At the Barona Reservation, a bingo manager was caught rigging games so that shills in the audience could win. Later, he testified about mob involvement in a number of Indian casinos throughout the country. Some of what he said has been substantiated. These events did occur, however, during the earlier years of Indian gaming.

Gambling is a Natural Target for Criminals Because of the Large Amounts of Cash. Gambling operations, including cardrooms, earn large amounts of cash and present particular opportunities for skimming and money laundering. Dealers don't have to continually inventory their chips and money while they are working, providing opportunities for fraud. In addition, cheats are drawn to casinos and cardrooms because of the large amount of money generated by the facilities. Dealer skimming of chips by palming or collusion is probably the greatest risk.13 Clubs allow employees to gamble when they aren't working, a situation that can lead to collusion. Other risks include credit abuse, card cheaters, and currency transaction violations. Because of these factors, proper operations and security are very important.

Skimming has been a significant problem. The Kefauver committee found that it was widespread. There were indictments in the early 1960s of casino owners for tax evasion. Skimming can also occur with the granting of credit. Credit can be granted to individuals who aren't required to repay all of the loan. One solution is to prohibit credit, but that can increase the problem of loan sharking.

Money laundering is another problem. Bettors can come in with a large amount of cash and purchase chips. The chips can then be cashed in, labeled as "winnings" and the money is now legal. In California cardrooms, where the house is not the banker, it is harder to dispute claims of large winnings. Federal regulations require that currency transactions of $10,000 or more must be reported including multiple transactions that exceed $10,000. Employees have to be alert to the time periods and possibility of multiple transactions.

Another issue is kickbacks. These occur in a variety of different situations. Operators can receive kickbacks for allowing money laundering. Employees can be pressured into giving kickbacks for preferred assignments.

Crime has Been an Issue for Cardclubs. Although there has not been an overall comprehensive study, information is available from a report by the Attorney General, new reports, as well as a report by the City of San Jose Police Chief.14 According to these sources, there have been robberies and assaults of patrons who had left the cardclubs after making money. In the news reports, the criminals and victims are usually Asian and have been playing Asian games which frequently have high stakes.

There is debate about the role of the clubs and crime. The City of San Jose produced a memorandum showing dramatic increases in crime in the area where a new club opened.15 But it is hard to know if that is a result of more people coming into the neighborhood or criminals following the money. The police chief of San Bruno states that the club there presents no crime problem.

Some of the crime may be unrelated to the gambling that occurs at the cardclubs. Rather, the club is a suitable place to meet individuals who are willing to buy stolen property, drugs, or cars without registration. Other activities such as loan sharking and credit card/check fraud have been noted. Unfortunately, some of these crimes are difficult to prosecute. There is some belief that gambling crimes are victimless. This thinking ignores the role of organized crime behind some of these. Loan sharking can be difficult to prosecute because the victim doesn't want to be involved.

In the City of Commerce, seven individuals linked to a Chicago crime syndicate were indicted by a federal grand jury for racketeering, extortion, and conspiracy. The loansharking and bookmaking operations occurred in the California Bell Club before the Gaming Registration Act was fully implemented in 1984.

Since then, however, there have been other incidents. A Santa Clara grand jury indicted 14 individuals associated with the Garden City cardclub. Skimming of approximately $4 million in club revenues occurred. The subjects were eventually convicted of filing false income tax returns, making illegal campaign contributions, theft of club assets, and perjury. This is a case where upper level management of the club was involved. While less frequent than participation by low or mid-level employees, the scope for criminal activity is greater when upper level management is involved. Another example was the attempted effort of Chinese organized crime figures to purchase a cardclub.

Detailed information about the cardclub in Bell Gardens, the Bicycle Club, sheds light on criminal acts in cardclubs. The Federal government was a part owner. The club had been seized because it was financed through ill-gotten gains. Following is a listing of some important developments at the club:16

In 1986, Asian games were introduced and club revenues went from around $12 million per year to $60 million, then $80 million annually.

One of the club's pit bosses was arrested and eventually plead guilty to seven counts of extortion and weapons' violations.

Wall Street Journal article identified the Asian Games manager as a member of an Asian crime family.

The Internal Revenue Service fined the club $4.2 million for ignoring laws designed to prevent money laundering.

Government audits turned up a lack of adequate cash reporting and internal accounting controls.

The Attorney General alleged that the founder is skimming millions in the form of kickbacks from the manager of the Asian games.

Three more employees were arrested involving possession of automatic weapons and heroin smuggling. They provided evidence that led to the arrest of the manager for Asian games on conspiracy and extortion charges.

A new Asian Games Manager was hired. Part of the job was for her to grant credit to gamblers and pay operating expenses. Her money came from an organized crime figure.

The sale of the club was discussed with organized crime figures. One is in Nevada's "Black Book," meaning he is barred from even walking into a casino. The deal eventually fell through.

The casino manager suspends the next Asian games manager. The City of Bell Gardens then forced the manager to reverse the action and canceled the work permit of the club security manager. The Department of Justice suspended the license of Asian games manager and that of the Casino manager.

The Attorney General alleged that the federal trustee had knowingly allowed illegal activities at the club, including loan sharking, kickbacks, and cheating.

The television news show, "60 Minutes" did a report on the club. They were able to catch on camera the laundering of money at the club.

Loan sharking has also been an issue for the clubs.17 This crime is particularly dangerous for the problem gambler who needs money for gambling. Because of their compulsion it is easy to end up in debt to a loan shark.

The purpose of detailing some of the crime is to give a general sense of some of the problems that have occurred. A more detailed listing of cardclub crime can be found in the information available from the Department of Justice.

Federal Concern for Money Laundering Evidence by New Regulatory Requirements. During 1996, the U.S. Department of Treasury's Financial Crime Enforcement Network proposed to more tightly regulate cash transactions at California cardrooms and Indian casinos. The federal regulation adds cardclubs and Indian casinos to the definition of financial institutions under the Bank Secrecy Act. The purpose is to prevent fraud and tax evasion. Under this rule, the facilities will be required to maintain a comprehensive record keeping program and establish anti-money laundering safeguards. Part of the justification that the Treasury provided was that California is unable to monitor and regulate the activities of cardclubs absent additional resources and a gaming commission.

Another Crime Issue Associated with Gambling is Street Crime. U.S. News and World Report did a comparison of crime rates in cities with gambling versus those that do not. The crime rates were significantly higher in the places that allowed gambling.18 Industry researchers dispute the view that cities with gambling have higher crime rates and assert that the rates aren't higher when the tourist population is considered.19 The article failed to consider that these cities are vacation destinations and their population is swollen by the influx of tourists.

Atlantic City showed a jump in crime when gambling was legalized. The city went from 50th in the nation in per capita crime to first.20 But when the number of tourists are taken into account, Atlantic City doesn't appear to have a crime rate that is much different from other cities.

In Deadwood, there were significant increases in crime and violence when gambling was legalized.21 The researcher acknowledges that the influx of people may be the cause. Another possible cause is the boom-town atmosphere.

Another researcher has pointed out that the crime that is attributable to compulsive gamblers is often underreported.22 This includes bad checks, embezzlement, check forgery and fraud. The crime rate is usually for street crimes, which aren't typically attributed to compulsive gamblers.

As noted in the economic section, Australia legalized a number of casinos. As such it offers a kind of a laboratory to see the results of expanded legal gaming. There was a noted increase in minor crimes, including vandalism and property damage by casino patrons. That may just reflect the growing number of tourists. There was not a big crime wave or any infiltration by organized crime.

Illegal Gambling is Still a Significant Problem. How big is illegal gambling? It may run as high as $100 billion per year.23 Other estimates put the figure even higher.24 That may seem like a very large figure, but as noted earlier, sports betting is immensely popular and most of it is illegal. The large extent of illegal sports betting is one of the reasons that some used to advocate its legalization. Others claim that business with illegal bookies would not decline because they offer better odds, credit, tax free payouts, and greater convenience in placing bets and collecting winnings.25

Sports books are not the only component of illegal gambling. In San Jose, police raids led to the confiscation of 60 illegal slot machines at 14 different business establishments.